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Fuel Subsidy Pass-Through and Market Structure: Evidence from the Renewable Fuel Standard

Author

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  • Gabriel E. Lade
  • James Bushnell

Abstract

The Renewable Fuel Standard (RFS) is among the largest renewable energy mandates in the world. The policy is enforced using tradeable credits that implicitly subsidize biofuels and tax fossil fuels. The RFS relies on these taxes and subsidies to be passed through to consumers to stimulate demand for biofuels and decrease demand for gasoline and diesel. Using station-level prices for E85 (a high-ethanol blend fuel) from over 450 retail fuel stations, we show that pass-through of the ethanol subsidy is, on average, complete. However, we find that full pass-through takes four to six weeks and that local market structure of gasoline stations influences both the speed and overall level of pass-through. JEL Codes: Q42, Q58, H23

Suggested Citation

  • Gabriel E. Lade & James Bushnell, 2016. "Fuel Subsidy Pass-Through and Market Structure: Evidence from the Renewable Fuel Standard," Center for Agricultural and Rural Development (CARD) Publications 16-wp570, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  • Handle: RePEc:ias:cpaper:16-wp570
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    Cited by:

    1. Luo, Jinjing & Moschini, GianCarlo, 2019. "Pass-through of the policy-induced E85 subsidy: Insights from Hotelling's model," Energy Economics, Elsevier, vol. 84(C).
    2. Li, Jing & Stock, James H., 2019. "Cost pass-through to higher ethanol blends at the pump: Evidence from Minnesota gas station data," Journal of Environmental Economics and Management, Elsevier, vol. 93(C), pages 1-19.
    3. Scott H. Irwin & Kristen McCormack & James H. Stock, 2020. "The Price of Biodiesel RINs and Economic Fundamentals," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 734-752, May.
    4. Christina Korting & Harry de Gorter & David R Just, 2019. "Who Will Pay for Increasing Biofuel Mandates? Incidence of the Renewable Fuel Standard Given a Binding Blend Wall," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(2), pages 492-506.
    5. Erich Muehlegger & Richard L. Sweeney, 2017. "Pass-Through of Own and Rival Cost Shocks: Evidence from the U.S. Fracking Boom," NBER Working Papers 24025, National Bureau of Economic Research, Inc.
    6. Burkhardt, Jesse, 2019. "The impact of the Renewable Fuel Standard on US oil refineries," Energy Policy, Elsevier, vol. 130(C), pages 429-437.
    7. Naylor, Jamie & Deaton, B. James & Ker, Alan, 2020. "Assessing the effect of food retail subsidies on the price of food in remote Indigenous communities in Canada," Food Policy, Elsevier, vol. 93(C).
    8. Zhang, Wei, 2021. "California's Climate Policy and the Dairy Manufacturing Industry: How Does a Federal Milk Marketing Order Matter?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 46(3), September.
    9. Catherine Hausman, 2019. "Shock Value: Bill Smoothing and Energy Price Pass‐Through," Journal of Industrial Economics, Wiley Blackwell, vol. 67(2), pages 242-278, June.
    10. Pouliot, Sebastien & Smith, Aaron & Stock, James H., 2017. "RIN Pass-Through at Gasoline Terminals," ISU General Staff Papers 201702220800001049, Iowa State University, Department of Economics.
    11. Joseph E. Aldy & Maximilian Auffhammer & Maureen Cropper & Arthur Fraas & Richard Morgenstern, 2020. "Looking Back at 50 Years of the Clean Air Act," NBER Working Papers 26687, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    retail fuel markets; E85; renewable fuel standard; subsidy pass-through;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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